Crawling Before Walking

Two weeks ago, I proposed that tracking entities could be more accurate if the legal entity identifier (LEI) gets linked to other key identifiers in the industry.

Before that ambition can be realized, however, issues basic to LEI implementation remain, as participants in a Virtual Roundtable conversation to appear in an upcoming Inside Reference Data special report are saying. There are concerns about identifier duplications, discrepancies between the local operating units (LOUs) being set up to administer the LEI, and costs for the whole effort.

In the dialogue, Simon Taylor, head of legal entity change in the group data services unit of UBS, says duplication of entities could still cause problems for assigning CICIs, the US Commodity Futures Trading Commission's interim identifier and pre-cursor to the LEI. Taylor believes an underlying country-specific registration ID could increase the accuracy of identifiers. Scott Preiss, a vice president at Cusip Global Services, says National Numbering Agencies (NNAs) can improve the value of the LEI initiative with their expertise.

That points to efforts to leverage overall benefits from the LEI, about which Tony Brownlee, managing director of data systems at Kingland Systems, observes that complex internal systems and processes in the largest firms could benefit from the presence of LEIs. Taylor adds that the ratings agencies ought to add LEIs to issuer files, which would produce a consolidated, straightforward view of ratings.

Tom Cosgrove, vice president of risk products at Alacra—the workflow tools provider offering the Alacra Authority File described in that prior column as a possible means for linking multiple identifiers—sees issues with the potential variations that could result with different local operating units (LOUs) administering the LEI. Cosgrove suggests that the Central Operating Unit (COU) will have to carefully monitor the LOUs, adding that LOU operations should be synchronized to have a single LEI database. Without a federated structure for LEI registration and administration, says Mark Davies, general manager of Depository Trust and Clearing Corporation counterparty data subsidiary Avox, differences between LOUs are inevitable.

The basic issues with LEI implementation include costs, of course. Costs will come from a host of areas, including systems integration, data migration, internal systems adoption, data remediation and data governance, according to participants in the roundtable. Avox's Davies says costs should be expected—but there are benefits to be gained from LEI investments, such as better support for risk management and reporting functions.

Positioning the LEI as the basis to build links and compatibility with other identifiers is still a good idea, but it appears the industry still has to get the LEI house in order before it can credibly go forward with an effort like that.